Tuesday, June 10, 2008

CFTC to discuss energy speculators with Fed, SEC

From MarketWatch:
The Commodities Futures Trading Commission said Tuesday that it is establishing a task force to study the role of speculators and index traders in commodities that will include representatives of the Federal Reserve, the Securities Exchange Commission and other agencies.

The announcement comes as the futures regulator furthers its investigation into whether financial investors are driving up the price of oil and other commodities, and if so, by how much. The task force also will include staff representatives of the Treasury Department, the Agriculture Department and the Energy Department.

On Tuesday, CFTC held a forum with regulators and representatives of futures exchanges on the role of index trading and energy trading on foreign boards of trade.

The CFTC's own analysis of commodities prices and index traders, or investors who invest in commodities via a benchmark, such as the Dow Jones-AIG Commodity Index, has found no significant correlation between these financial investors and recent price spikes....MORE

The CFTC testified last month that they had not seen an increase in speculative activity vs. the commercials and had in fact seen a decrease. The next day one of the witnesses pointed out that speculators were entering into swaps contracts with banks (GS, C, JPM etc.) whose trades are recorded as commercials. Voila, you change both the numerator and denominator in the ratio.

In addition the speculators are able to evade the speculative position limits by this maneuver, cool huh?

Here's a little thought problem for the CFTC. The estimate is that the amount of money in the commodities markets has gone from $13 Billion to $260 Billion in the last five years. Now what would happen if, say, half the total was pulled from the commodities markets. Would prices go up, down or stay the same. The answer to that question is the answer to whether the index speculators have run prices up over the last five years.